Don’t depend on Chinese demand, warns Rabobank

Kevin Bellamy, senior analyst at Rabobank’s food and agriculture research and advisory department, says that producers should not bank on ever higher dairy prices, as these softened in the second quarter of 2014. “There was talk of whey powder increasing in price, but these increases were not as high as expected, due to all the new capacity coming online.” He also predicts that the market will change after the next decade, when China learns how to produce milk to feed its demand. In the meantime, the country is working through its stocks and demand is lessening. He was speaking at Dairy UK’s recent seminar, ‘The global game and how to play it.’

China for its part, initially soaked up any extra supply on the world market, but this year has not. “China buying last year forced the rest of the world out of the market because of the high prices it was paying,” Bellamy says. The domestic supply suffered due to foot and mouth and other issues, so imports rose steeply at 6 to 8%. This consumption masked the fact that growth had slowed considerably, to around 1.6%. “Imports into China will slow as production returns to normal and it works through its large stocks.” Other countries will come back into the market, but will not pay the same inflated prices for stocks, he predicts.

In Europe, there is a gearing up for post-quota, and the global demand increase of 2.5% is easily being met, depsite recent droughts in the US and New Zealand. However, now the surge of milk production in those countries has to be met by growth in exports. “You can argue that the increase in production arrived early, before the quota ends,” he notes.

That being said, while the UK is not a hugely expanding market, he notes that the average British consumer earns a lot more than the Chinese one. One aspect of attaining growth for UK producers should be focused on gaining more share back in the domestic market, he notes.

Demand in developed markets also slowed, Bellamy says. For the future, the developing world will provide much of the growth in world demand, with global demand at 2.3% through 2020. Emerging markets will provide three per cent, while the mature markets will grow minimally at 0.9%.

“The real trend is not globalisation, but regionalisation,” Bellamy says. Most of Asia is supplied by Oceania, while the US exports primarily to Mexico. Europe’s natural outlet is the Middle East and North Africa, as the US also has geopolitical issues when exporting to these regions. “The Middle East and Africa are really good regions for EU countries,” he says.